Why Is It OK to Abuse Customers?

By Rob Enderle
Apr 17, 2017 10:41 AM PT

I don't know about you but I can't seem to get out of my head the image of that poor Asian doctor who, seemingly unconscious,
was dragged off that United flight. The fact that the airline did that to a 69-year-old doctor just so it could save money moving employees around is nearly as unbelievable as the initial
tone-deaf response from United's CEO, who blamed the passenger. (It was only after a tremendous backlash that the CEO offered an actual apology.)

While the United debacle was going on, I happened to be reviewing
Qualcomm's counterclaim against Apple, and holy crap. It alleges that Apple crippled the modems in some iPhones to cover up its use of cheap parts, and that it aggressively acted to prevent anyone, particularly Qualcomm, from pointing it out.

I have the view that if you pay for a thing, you should get that thing -- and Apple customers, according to Qualcomm, are getting screwed. Given how we depend on our phones, my guess is that if this is true, it won't end well for Apple.

I'll share some thoughts on customer abuse and then close with my product of the week: the Netgear Arlo Security Camera system (again).

Customer Abuse

I often wonder if top executives and boards have some weird undiagnosed disease that causes them, from time to time, to do something so incredibly stupid you have to wonder if someone snuck up on a bunch of them and hit them with a stupid stick.

I recall having a discussion with an IBM exec I reported to back in the early 1990s about the company's practice of intentionally creating buggy products and then charging customers to fix the problems it had created. I asked why we were doing something that seemed insane, only to be told, effectively, that since the customer had no choice, IBM could do what it wanted to them and they would pay whatever IBM charged.

It was like selling air. It remains one of the most idiotic responses I've ever heard, and shortly after I left the firm that entire executive team was canned. (Apparently the newly hired CEO, Louis Gerstner, agreed with my assessment.)

Microsoft had a group of executives who covered up that Office 98 wasn't backward-compatible, and a different group covered up the issues with Windows Vista that should have prevented its release. Those issues created massive problems with customers, and most of the folks responsible lost their jobs as a result.

To hit aggressive price points with lithium-ion batteries in the early 2000s, Sony covered up that they hadn't updated their lines to prevent metal contamination. The batteries became contaminated and caught fire,
forcing massive recalls and pretty much wiping out Sony's lithium-ion battery business.

Those batteries could have resulted in an impressive number of deaths had one of them gone up next to a better fuel source on a plane. The lithium-ion coverup followed Sony's institution of
a program to put rootkits on PCs in an attempt to combat piracy, which opened those PCs to hacking and put customers at risk. The backlash over that helped wipe out Sony's Walkman business and opened the door to the iPod.

Takata covered up that their airbags were not aging well and actually could kill drivers when they deployed. It apparently did not do anything to address the problem, which eventually was discovered and resulted in the
biggest automotive recall in history. It still might put the company out of business.

It appears that Samsung cut short quality testing to get the Galaxy Note7 out quickly only to find out it was catching fire. In an effort to address that problem quickly, it guessed wrong about the cause, and replacement phones caught fire too. To recover some of the costs associated with its massive recall, Samsung decided
to sell refurbished Galaxy Note7s, and I doubt that'll end well. I think Samsung has a death wish.

It really seems like an epidemic of stupid at times...

United's Disastrous Decision

There were two paths that United could have taken to move employees to another location without causing an uproar. One was to increase the voucher amount offered to passengers to a point where it was cheaper to charter a plane to move the employees, or simply to have in place what many non-airline companies use, a fleet of smaller planes for employees' use.

What is particularly scary about the method that United chose is that it didn't factor in why people weren't taking a US$1,000 voucher to change flights. Its method for choosing which passengers to bump only focuses on connections, so those who were ending up at the destination airport were prioritized for bumping.

What if someone's job depended on getting to a location on time? What if someone had a dying relative, a wedding or funeral to attend? What if someone were a doctor who needed to get to a critical patent? None of those possibilities was been taken into account, and the poor guy who was beaten up was in fact a doctor.

United's decision has cost it millions in brand damage, and because the passenger looked as though he might have been Chinese, China is treating this like a racial attack on its people, which could result in sanctions. I bet that before this is over, Congress might put a law on the books addressing it. I'd name it "The United CEO Is An Idiot Law." (By the way, PRWeekwants its award back. Suddenly this is an Oscar 2017-like event.) It may even
cost the CEO his job -- all because it didn't have a better way to move employees around, which is kind of sadly ironic given it is in the transportation business.

At the end of that last linked article, the author asks why it took so long for United even to understand this was a problem. It was because, in the minds of its executives, customers had stopped being people and had become an exploitable resource instead. That attitude generally is considered a company and career killer.

Apple's Secret War on Customers

Between Apple and Samsung, I'm not sure which has the stronger tendency for suicidal policies. Apple clearly has a problem, because it is a firm that is valued largely for its innovation, and that is one word that largely has been used in the past tense since Tim Cook took over for Steve Jobs. While the iPhone has done well -- particularly this last quarter, thanks to Samsung's suicidal moves -- nothing else has risen to diversify Apple's revenue or offset a trend of increasing margin pressure. As a result, Apple has moved to a strategy of aggressively cutting costs.

That sets a foundation for the kind of problem that I mentioned earlier in this column. You see, Apple customers effectively are locked in to Apple services -- which would be OK, as long as Apple didn't see it as an opportunity to mine them, and could grow its revenue and margins by creating more and more compelling products.

However, Apple hasn't done that. The Apple Watch has languished, the iPad is in decline, and the iPad Pro has been a disappointment. MacBooks, Macs and iMacs have been cash cows for so long that reviving them seems increasingly unlikely, and is driving the company go cheap on components while considering charging more and more for iPhones.

The Qualcomm filing basically just says "Apple is an assh*le," which is far from an uncommon position from any Apple supplier. It gets interesting on page 46 of the whopping 130-page document. It alleges that Apple not only has been using sub-optimal (read cheap) parts, but also has been threatening to retaliate should anyone point that out.

Point 4 on page 46, basically says there are two iPhones in market sold as the same phone: one with cheap parts, and one with good parts but that Apple is crippling so that people can't tell the difference (and thereby avoid the bad phone). However, Apple can't cripple it enough, so people are barred from pointing out that the crippled phone is still better. WTF!?!

Here is the thing: Increasingly we live on our cellphones. We depend on them to work if there is an emergency. Our lives increasingly literally depend on them, and folks think that by buying Apple they are getting the best. However, if Qualcomm is correct, they either are getting a substandard phone -- or worse, an intentionally crippled product.

The potential consequences range from poor performance to bad connectivity, which could leave users with a phone that doesn't work when they most need it. Cutting quality while raising prices and aggressively covering that up only works temporarily. Eventually people figure it out -- and that didn't end well for IBM or for the CEO that shortly thereafter was fired.

Like all of the other examples I've cited here, Apple's alleged action is customer abuse. If it turns out to be true, then it means that the only difference between Apple and all the rest of these bad examples is that Apple has taken more money from its customers. I expect that as a reason to buy from a company, that likely falls pretty low on anyone's list.

I'll add one other element that I think is very similar to the old IBM and the new Apple. Both companies enjoyed -- and still enjoy -- phenomenal customer loyalty. Even though IBM's behavior had been going on for years, most customers seemed to give IBM the benefit of the doubt. As a result, when the problem became pronounced it went to nuclear unbelievably fast.

Certainly, it was way too fast for the existing management team to respond, and the result was a purge. It eventually saved the company, but it was a very close thing. Apple's loyalty is, if anything, greater than IBM's was -- and today's consumer market certainly can move a ton faster than enterprise computing did back in the 1980s and early 1990s.

What this means is that if this alleged anti-customer behavior is left in place too long, the backlash on Apple could be unrecoverable -- particularly if Google further reduces the migration pain to Android.

Given that many of you have huge investments in Apple, I'm suggesting you might not want to have all those eggs in that same troubled basket. Diversification may save your ass.

Wrapping Up

There are times when I wonder if boards and CEOs either are mentally challenged or suicidal. From Samsung, to United, to Apple, this year has been an increasingly ugly example of executives behaving badly.

I know I missed the chapter in management school that suggested screwing customers was a great business practice, but I seriously think those pages should be torn into little bitty pieces and tossed out, along with the idiots who adhere to this strategy.

In any case, this month has provided a strong "teachable moment." Let's hope a lot of executives learn by watching rather than doing. It is never OK to abuse customers. When companies do, they have translated "customers" into "things." We really don't like being mistreated as "things."

When I last
wrote about this product, I'd installed two cameras and was impressed that the batteries had lasted a couple weeks. Well, it's been over a month, and I'm now up to 10 cameras. I've had to recharge only two batteries, both of which had more than half their battery life left even though they were in very high traffic areas, which suggests these puppies could last for months in low-traffic areas.

We've caught stray dogs wondering in our yard, the gate left open and our dogs sneaking in and out of it, delivery people who have lied about deliveries, pet sitters who weren't doing what they said they were doing, and a herd of deer wandering in to munch on our newly planted flowers. This system is AWESOME!

Netgear Arlo Pro

The Netgear Arlo is my
third camera system, and it was by far the easiest to set up. The lack of wiring means I can put the cameras anyplace I want, and I can install a ton of them. My dogs and cats each have their own tracking camera, but my wife had me move the one that was on her. (That'll teach me to tell her, huh?)

I did figure out one thing: It is cheaper to buy the cameras in the bundle then one by one. You can get an Arlo system with four cameras for $350 if you shop around, while the cameras individually cost around $150.

Sadly, I didn't figure this out until after I'd purchased an additional eight cameras. Further, you get up to five cameras with the free service, but if you want to go to 10 it will set you back $99 a year. However, you then get 30 days of storage for up to 10 GB of data. For 15 cameras, it's $149 a year and you get 60 days storage for up to 100 GB.

Arlo just launched a $450 camera, and what makes it different is that it has local storage, a 3G/4G connection, and a massive battery. Sadly, this is only available to large companies or the government, and we know they would never use them to spy on you...

It has been a long time since I was this excited about a product, and that is why the Netgear Arlo is my product of the week -- again! You could call this "the iPod of security camera systems."

Rob Enderle has been an ECT News Network columnist since 2003. His areas of interest include AI, autonomous driving, drones, personal technology, emerging technology, regulation, litigation, M&E, and technology in politics. He has undergrad degrees in merchandising and manpower management, and an MBA in human resources, marketing and computer science. He is also a certified management accountant. Enderle currently is president and principal analyst of the Enderle Group. He formerly served as a senior research fellow at Giga Information Group and Forrester. Email Rob.